Proof-of-Stake (vs proof-of-work)


Hi there! My name is Xavier and you might have read
articles online saying that cryptocurrencies like Bitcoin uses enormous amounts of energy
to secure their networks. But why is that – and more importantly – what
are the alternatives? Mining new coins takes a lot of computing
power because of the proof-of-work algorithm. The idea was first introduced in 1993 to combat
spam emails and was formally called “proof-of-work” in 1997. However the technique went largely unused
until Satoshi Nakamoto created Bitcoin in 2009. He realized that this mechanism could be used
to reach consensus between many nodes on a network and he used it as a way to secure
the Bitcoin blockchain. However, the proof-of-work algorithm works
by having all nodes solve a cryptographic puzzle. This puzzle is solved by miners and the first
one to find the solution gets the miner reward. This has led to a situation where people are
building larger and larger mining farms like this one. According to Digiconomist, Bitcoin miners
alone uses about 54 TWh of electricity, enough to power 5 million households in the US or
even power the entire country of New Zealand or Hungary. But it doesn’t stop there. Proof-of-work gives more rewards to people
with better and more equipment. The higher your hash rate is, the higher the
chance that you’ll get to create the next block and receive the mining reward. To increase chances even further, miners have
come together in what’s called “mining pools”. They combine their hashing power and distribute
the reward evenly across everyone in the pool. So to sum it up: proof-of-work is causing
miners to use massive amounts of energy and it encourages the use of mining pools which
makes the blockchain more centralized as opposed to decentralized. So to solve these issue’s we have to find
a new consensus algorithm that is as effective or better then proof-of-work. In 2011 a Bitcointalk forum user called QuantumMechanic
proposed a technique that he called “proof-of-stake”. The basic idea is that letting everyone compete
against each other with mining is wasteful. So instead proof-of-stake uses an election
process in which 1 node is randomly chosen to validate the next block. Oh yeah, small difference in terminology there. Proof-of-stake has no miners but instead has
“validators” and it doesn’t let people “mine” blocks but instead “mint” or
“forge” blocks. Validators aren’t chosen completely randomly. To become a validator, a node has to deposit
a certain amount of coins into the network as stake. You can think of this as a security deposit. The size of the stake determines the chances
of a validator to be chosen to forge the next block. It’s a linear correlation. Let’s say Bob deposits $100 dollars into
the network while Alice deposits $1000. Alice now has a 10 times higher chance of
being chosen to forge the next block. This might not seem fair because it favors
the rich, but in reality it’s more fair compared to proof-of-work. With proof-of-work rich people can enjoy the
power of economies at scale. The price they pay for mining equipment and
electricity doesn’t go up in a linear fashion. Instead the more they buy, the better prices
they can get. Economies at scale! But back to proof-of-stake. If a node is chosen to validate the next block,
he’ll check if all the transactions within it are indeed valid. If everything checks out, the node signs off
on the block and adds it to the blockchain. As a reward the node receives the fees that
are associated with each transaction. Okay but how can we trust other validators
on the network? Well that’s where the stake comes in. Validators will lose a part of their stake
if they approve fraudulent transactions. As long as the stake is higher then what the
validator gets from the transaction fees, we can trust them to correctly do their job. Because if not, they lose more money then
they gain. It’s a financial motivator and holds up
as long as the stake is higher then the sum of all the transaction fees. If a node stops being a validator, his stake
plus all the transaction fees that he got will be released after a certain period of
time. Not straight away because the network still
needs to be able to punish you, should they discover that some of your blocks where fraudulent. So the differences between Proof-of-work and
Proof-of-stake are quite significant. Proof-of-stake doesn’t let everyone mine
for new blocks and therefore uses considerably less energy. It’s also more decentralized. How is that? Well in proof-of-work we have something called
mining pools. Those are people who are teaming up to increase
their chances of mining a new block and thus collecting the reward. However these pools now control large portions
of the bitcoin blockchain. They centralize the mining process and that’s
dangerous. If the three biggest mining pools would merge
together, they would have a majority stake in the network and could start approving fraudulent
transactions. Another important advantage is that setting
up a node for a proof-of-stake based blockchain is a lot less expensive compared to a proof-of-work
based one. You don’t need expensive mining equipment
and thus proof-of-stake encourages more people to set up a node, making the network more
decentralized and also more secure. But even proof-of-stake isn’t perfect and
it also has some flaws. You might think: “hold on a minute! If I buy a majority stake in the network,
I can effectively control it and approve fake transactions” and you would be correct. This is called the 51% attack and was first
discussed as a weak point of the proof-of-work algorithm. If a single miner or group of miners can obtain
51% of the hashing power, they can effectively control the blockchain. Proof-of-stake on the other hand makes this
attack very impractical, depending on the value of a cryptocurrency. If Bitcoin would be converted to proof-of-stake,
acquiring 51% of all the coins would set you back a whopping 79 billion dollars. So the 51% attack is actually less likely
to happen with proof-of-stake. But that’s not the only risk. Proof-of-stake algorithms also have to be
careful how they select the next validators. It can’t be completely random because the
size of the stake has to be factored in. But at the same time the stake alone isn’t
enough because that will favor rich people, who will get chosen more frequently, will
collect more transaction fees, become even richer and thus increase their chances of
being chosen as validator even further. There are a number of proposals to fix this
like coin age based selection. Another potential problem is when the network
choses the next validator but he doesn’t turn up to do his job. This could easily be solved by choosing a
large number of backup validators as a fallback. In short: proof-of-stake brings additional
risks when compared to proof-of-work and a lot of research is needed to understand these
risks and to mitigate them. Alright so now that we know what proof-of-stake
is, what benefits it has and what risks are involved, let’s look at real world usage. A few examples of coins that use it right
now are Peercoin, Lisk and Nxt but more cryptocurrencies are likely to follow in the future. Ethereum for instance is working on implementing
a proof-of-stake system which they call Casper. It’s currently deployed on the Ethereum
testnet and is actively being developed. And also the Cardano project has long been
working on creating the a provable secure proof-of-stake algorithm that they call Ouroboros. More about that in this video right here. So that was it for this video. If you liked it, give it a thumbs up and consider
getting subscribed. Thank you very much for watching and I’ll
see you in the next video!

100 thoughts on “Proof-of-Stake (vs proof-of-work)”

  1. Is a currency that work with PoW plus PoS like Decred is more secure than a currency that uses PoW or PoS only?

  2. Thank you. If POS is really as secure then it's definitely the way to go vs POW consuming massive amounts of energy and ever increasing mining costs.

  3. So, is the node that creates the block with their proof of stake directly appending the block to the blockchain, or is there another consensus mechanism like the 51% mechanism that validates the new block after it is created and before it is appended to the blockchain?

  4. How does the system detect if a validator approved a fraudulent block or tampers with a block?
    Sounds like the validators work needs to be validated which would beat the purpose?

  5. These mining farms are sooooo ugly and reminiscent of the huge early computing systems.. It seems were not ready for a truely free crypto until the power and validation is also decentralized.. Not sort of decentralized.. Every person needs to be their own central bank essentially. Right now it feels like we're under a 51% attack. Many of the early investors may have had ties London finance and they may hold beliefs that crypto needs regulation. I we aren't the regulators and creditors and customers and providers then essentially we have just helped fund our own slavery… A fedcoin.. Lest we not let this happen please. Crypto instead is bought and sold and traded and shorted and pumped and dumped and manipulated at what end? And private keys.. Who thought that was a good idea? It's the furthest from being user friendly. Could be a long crypto winter folks. I'm still bullish because the way the news anchors talk trash about crypto and the crypto communties in general. I doubt their reverse psychology game is better than my third eye game time will tell I will hodl on and check coinbase every ten minutes for the next 2 years it seems

  6. As the stake in the deposit will probably higher that the transaction fees but much lower that the transaction amount. What happen if the validator choose to falsify the ledger and steal the transaction amount? How can proof of stake prevent this kind of fraud? In pow it takes 51% of the system to falsify blocks but it looks like it is much easier in pos. Thanks!

  7. and what is that "job" that a validator should do? if I'm choosen as a validator what should i do?

  8. RAIN coin – очень перспективная монета, сейчас самое время покупать!

  9. thanks for the video! i'm wondering how does the network know that the validator approves a fraudulent block? since he/she's the only one doing the validation I suppose?

  10. 5:00 'If the 3 biggest mining pools merged together, they would have the majority of the network and start approving fraudulent transactions.'
    Incorrect. 51% doesn't allow you to create fraudulent transactions. Other nodes will mark the block as invalid, reject the block, and ban the nodes announcing these. This means that all the miners' hard work is wasted.

    Do you even know how bitcoin block (and therefore transaction) validation works? I seems not.

  11. Miners did it to themselves through greed. They would launch massive amounts of ASICS on to brand new projects and sometimes it would freeze the network of new projects. Now most new projects are solely PoS.

  12. I just don't see how POS could truly be more decentralized than POW. Just bc we haven't figured out a way to become more efficient "miners," doesn't mean that form of work is not superior.

  13. A good analogy :

    POW = Production Enconomy (linked to physical world variables => energy consumption, hardware…)

    POS = Financial Enconomy (not linked to physical constraints => open door for creation of derivatives products)

    Immagine how easy would be for an ETF to rise 80 bn Dollars to acquire 51% control of a POS Blockchain…

    POW is 1000 times better!! That's why Bitcoin is the King.

  14. How does a person validate a transaction in proof of stake? Is it the same process miners do when validating transactions in proof of work?

  15. Seems with the Craig Wright, Roger Ver scandals that POW needs to be ended. Seems the large mining pools change the protocol and try to start icos when the mining fees drop.

  16. Complete novice here, but I have a suggestion. Why not assign blocks to users by scaling the size of their stake with the transaction value of the block? So have some sort of sliding scale where somebody with a smaller stake will get blocks of smaller transactions, and somebody with a larger stake will get blocks of larger transactions, kind of like tax brackets. And arrange it so that everybody (having over a relatively small stake in the currency) gets roughly the same amount of blocks to process.

  17. Ethereum requires 1,000 ETH before you can be PoS, say goodbye to the small time timers. Even with ETH prices hovering around $100, that's well out of the reach of the little guy.

  18. If a trusted third party is required to choose next validator (though some sort of random) and safeguard validators' stakes, how can this be more decentralized than POW?

  19. Correct me if I'm wrong but the whole point of PoW is that it's hard to get the right hash but super easy to verify it. So my question is even if one pool owned 51% of the hash power literally as soon as they post the false hash as a solution it can be checked to be known as false so I don't see how they could fake it. Also I don't understand how you even could fake it if a hash consists of previous data from the block chain and new transactions ran though a hash algorithm doesn't faking a hash also fake a transaction? And if so since things like public and private keys exist on wallets no one can fake that you sent money except you so again wouldn't this be super easy to verify as false once the hash is posted? As immediately you can run the hash and be like hey uh this transaction didn't use the correct private and public key combo this is fake. Point is it's already hard enough to fake it and then by PoW's very nature it's super easy to tell a fake/bad hash from a real one. I agree that the amount of power miners for bitcoin use is ridiculous and not scale-able at all in terms of how much power is used and how many transactions are added to the ledger. But once bitcoin halves for the last time and other coins stop having block rewards through inflation miners will be getting paid through transactions fees at that point anyway, PoS as it stands just seems like a half baked solution imo, especially considering that most coins that use it don't have much market cap preventing someone from getting 51% of it.

  20. POS has a single point of attack buy more coins and control the system 2:55. POW=mathematics which requires massive resources in money and computation to 51% attack. Ether=rip.

  21. you are utterly wrong in this vid. miners do not validate. user nodes do. we saw this with UASF and NO2X. miners are mere janitors. they follow the code that ppl value most. 95& of hashrate wanted to 2x hard fork last year and they lost to the user nodes.

    get it right.

  22. PoS is full of sht. if ppl want to hard fork off due to a 51% attack in current chain, the new chain will still have the same PoS cartel! in PoW, they can hard fork off to a new mining algo and there is no cartel!

  23. There has to be more of a consequence if the validator's approve fraudulent transactions them just losing some money. They will be permanently banned from staking, they only have 1 redeemable chance. If they purposely do it then permanently banned. And have it written in the smart contract

  24. Great explanation, PoS should be implemented on BTC.
    No one can control 51% of BTC if that happened, for if any person or government tried the price
    would increase to such an extent that they would either go bankrupt or make everyone too filthy rich to care.

  25. Enjoy your vids. 2 errors here. 1) PoS does not change the cost of running a node. A node is not the same as a miner. A node validates transactions and does not mine. A miner orders transaction. 2) 51% attack is not relavent to PoS. Also there are some obvious attacks on PoS not mentioned like stake grinning

  26. isn't there a way to combine PoS with the cryptographical work of PoW. because proof of work is the only true cryptographical secure consensus. maybe the next validator shoud be chosen by some type of nonce or something to mimic proof of work more. (but with less hashpower)

  27. PoW is more secure, and the energy “wasted” is overrated…the success of a coin depends on its attraction to new miners.

  28. I've watched this video before, but only just paused at 2:04 to read the initial proof of stake idea by QuantumMechanic.

    I recommend everyone do this. It's an extremely enlightening post. What a visionary.

  29. Dude I love your video, but please be careful about your terminology. You keep saying "Proof of Work" in places where, by context, it is obvious it should be Proof of Stake.

  30. As Antonopoulos explained, PoW is still way more secure because it would be more difficult/expensive to make backwards changes in the chain.

  31. buying up 51% of the coins and distributing fraudulent transactions can theoretically happen withing minutes.

    buying like 5 billions worth of mining equipment, setting up a mining farm and then starting to overtake the network takes months and might not be in time as you have to keep up with the hashrate increase.

    it's not that simple. Also your investment in mining is a risky business due to competition and dependency on market price of the rewards! staking your coins is not risky at all, it's free money for not spending them.

  32. There are a few factors, such as greater efficiency of PoS coins, its higher resistance against any kinds attacks as well as the growing popularity of this consensus which is dictated by a significant technological advantage over Proof of Work. That is why some currencies decide to conduct swap and resign from using PoW which is replaced by Proof of Stake. One of such coins is PrimeStone Coin (PSC) which conducted swap in January 2019. As a user I am more satisfied with PoS, because rewards for stakers come proportionally to the amount of possessed coins so it a fair solution. The situation with PoW was a bit confusing nd irritating. When sb put a huge comupting power and then switched it off, the chain was stuck. So I consider chains based on PoW less efficient and effective than PoS.

  33. Great video! I have just one question. If proof of stake would be implemented, could this validator also add a coinbase TRX to create new bitcoins/coins in addition to the reward of the fees?

  34. Great explanation, but nowadays, some coins allows staking pool. I agree that it may reduce electricity cost but doesn't necessarily solve the centralization problem from poolings.

  35. So Ethereum will be pushing out the 99%, gotcha. So Ethereum as a currency will die, the blockchain will be used for businesses but when has a good intention to ever level a playing field for all EVER worked. It hasn't. Also, I know $79 Billion sounds like a ton, but you know who has that easily right now and also would LOVE to control all this. The Federal Reserve. Add to that they are run by bankers who know exactly how to manipulate a market (See the Great Depression). So bring it down by 75% and buy 51%, this is CRAZY easy to do.

  36. so isn't there any consensus (voting) in proof-of-stake. Like isn't the node sent to all for validation after the person chosen from the proof-of-stake validates it?

  37. quick questions, in proof of stake
    1. the blocks are still hashed or encrypted right? since theres no miners , then by whom?
    2. is there a dificulty level or how is the time between block creation maintained the same?
    3. if in PoS you can't mine, then how are the first coins created?
    4. lastly, how do validators approve a transaction block? is this manual or done automatically?

    I'm just trying to better understand

  38. I know how difficult it is to turn complex into simple. And I really appreciate the effort you put on and sharing it with us. Kudos to you!😀

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